Letting corporations skate on taxes undermines life on Main Street

The Great Recession “officially” ended almost five years ago, but looking at many communities across the country, you wouldn’t believe it. Ten million people are still searching for work, and more than 15 million families have lost their homes to foreclosure. Classrooms are more crowded, roads need repair, and states and cities struggle to meet growing needs as Congress imposes an austerity agenda. Unless you run a wealthy corporation, you are likely experiencing an America in crisis.

Many politicians spin this as a “spending” crisis, claiming, “There just isn’t any money.” Nonsense. Corporate profits are at an all-time high. The stock market has soared along with CEO bonuses, and yet corporate taxes have fallen to about a fifth of their profits. They are bailing on their responsibility to contribute to the public structures that make their commercial activities profitable.

The Disappearing Corporate Tax Base, a new report by our two organizations, shows that when corporations don’t pay their fair share of taxes, Main Street suffers.

On average, one-third of state budgets depend on revenue distributed by the federal government. As corporations have lobbied for – and won – loopholes, deductions and credits, the amount they have paid in federal income taxes in the past decades has plummeted. This means less revenue is available for federal aid to states. More than 600,000 public jobs on the state and city level have been eliminated since 2009 – that’s fewer teachers, first responders, and road repair crews at work in our communities. In particular, money for schools, roads and environmental protection has fallen by 29.7 percent between 2008 and 2013 (after adjusting for inflation). As a result, two-thirds of the states are spending less per pupil on education this year than they were before the recession began.

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At the state level, corporations have been lobbying hard for cuts to state corporate income tax rates and for increased subsidies. Among the 46 states that have state corporate income taxes, 34 of them collected less corporate income tax revenue in 2012 than in 2008 (after adjusting for inflation). By demanding state economic development subsidies to maintain or expand operations in a state, they manage to drain an additional $80 billion from state coffers annually, according to The New York Times.

It wasn’t always this way.

In the 1950s, when Republican Dwight Eisenhower was president, corporations paid almost half of their profits in federal taxes, which amounted to approximately a third of the federal budget. These funds were used to build the nation’s interstate highway system and expand aid to the states. Corporations thrived, the middle class grew, and public services were strengthened.

Today, our economy is five times larger, corporations are delivering record profits to shareholders, yet they pay on average less than 20 percent of those profits in federal income taxes. And those taxes amount to less than a tenth of the federal budget. While corporations are thriving, the public services we all depend on are suffering.

This system is fundamentally flawed, and we believe those that have done well in America should do right by America.

By closing loopholes for shifting jobs and profits offshore, ending deductions for lavish executive compensation, placing a small sales tax on Wall Street financial transactions and restoring state income tax rates, we could raise several hundred billion dollars a year. We could use just $36 billion to rehire the teachers, firefighters, police, librarians, parks and recreation staff and many other public servants whose jobs were eliminated through budget cuts. Another $125 billion would fund the restoration of our deteriorated roads, bridges, school buildings, dams and water systems, creating 2.5 million new jobs.

Politicians, flush with corporate campaign contributions, tell us we can’t afford to make these investments. We say we can’t afford not to. It’s time for Congress to demand that corporate America step up its contribution to the public systems that ensure our economy works for everyone.

Katherine McFate is president and CEO of the Center for Effective Government. George Goehl is the executive director of National People’s Action.